Building in flexibility

Frank and Heather have a small business and want flexibility in their mortgage. They want to be able to make lump sum payments without penalty, but they also want to be able to re-draw should the need arise. They decide to apply for a revolving credit loan.

They need $246,000 to purchase their new home, and they are facing another $1,200 in legal and valuation fees. The bank offers a loan of $250,000 which will cover all this and allow some extra for any unexpected costs.

Frank and Heather accept this credit limit, but they only actually draw down the $246,000 for the property. They pay the fees in cash over the following month. This way, they start the mortgage with some extra credit should they need it, but are only paying interest on the money they really had to borrow.